Before You Buy the Code: Why Tech Classification Can Make or Break Your M&A Deal
One of the most common—and most dangerous—assumptions in a technology M&A deal is that everyone knows what’s being bought.
In my work advising on transactions involving everything from SaaS startups to blockchain protocols, there’s always a moment when someone asks, “So what are we actually acquiring?” And more often than not, the answer is more complicated than it should be. It’s not just “software” or “code.” It’s a mix of proprietary tools, open-source libraries, third-party APIs, and infrastructure platforms, all cobbled together with varying levels of documentation, ownership, and compliance.
That’s where technology classification comes in—and why we treat it as a core part of our legal process at Montague Law.
Why Classification Is the First Step in a Smart Deal
Technology classification is the process of identifying and organizing the assets that make up a company’s tech stack. We’re not just talking about knowing what tools are in use; it’s about understanding IP ownership, licensing risks, and regulatory exposure. This goes far beyond basic diligence checklists.
In today’s innovation-heavy climate, it’s normal for startups to scale rapidly by building on open-source software, cloud platforms, and AI APIs. But with speed comes complexity—and classification is how we make sense of it all. McKinsey & Company calls it a key lever in tech-enabled M&A, essential for value creation, risk mitigation, and post-deal integration.
The classification process directly impacts valuation, legal risk, and how well a buyer can integrate the acquired business after closing. Ignoring it often results in post-deal disputes or operational headaches that could’ve been prevented with a little more foresight.
A Story from the Trenches
Not long ago, we advised a client who was acquiring a fast-growing SaaS platform. The product looked great—clean UI, customer traction, solid growth metrics. But when we dug into the codebase, we found it was stitched together with open-source software governed by GPLv3 licenses—a restrictive license that requires derivative works to also be open source.
The problem? The company hadn’t complied with any of the license terms. No attribution, no documentation, and no plan for how that risk might transfer post-close. Suddenly, what looked like a proprietary, ownable asset became a potential liability. We had to restructure parts of the deal, push back closing, and re-negotiate key indemnification clauses.
It was a valuable product—but because it hadn’t been classified properly, it almost wasn’t a sellable one.
The Hidden Risks in a Modern Stack
In today’s ecosystem, modern software is rarely built in isolation. Most startups build fast, using layers of open-source libraries, infrastructure-as-a-service platforms, API integrations, and more. In fact, studies show that open-source code makes up 70–90% of most commercial software applications.
But that speed comes with blind spots. A single misused open-source license, a forgotten dependency, or an unclear IP assignment can create downstream issues that derail even the most promising M&A.
If you’re a buyer, classification helps you understand what you’re really buying—and whether you can actually own and operate it. If you’re a seller, it shows you’ve done your homework and de-risked the deal for everyone involved. That builds confidence and accelerates closings.
What We Look For (and Why It Matters)
At Montague Law, we begin every technology deal with a deep classification conversation. This isn’t about box-checking—it’s about understanding what makes the company work and where risk may be hiding.
We ask key questions: Was the code developed by employees or contractors? Are there signed IP assignment agreements in place? Does the product depend on public APIs like OpenAI or Stripe? Are there compliance obligations tied to data handling under frameworks like GDPR or CCPA?
When we understand the composition of the tech stack, we can write stronger documents: Reps and warranties that reflect real-world IP risk. Tailored indemnity structures based on known issues. Escrow and holdbacks that make sense. Contractual frameworks that help protect everyone involved.
Clean Code, Faster Closings
Companies that go through classification before diligence always stand out. Their documents are cleaner. Their risk is lower. Their story is stronger.
Compare that to a startup that hasn’t audited its dependencies or doesn’t know how its infrastructure is licensed. Even if the product is amazing, the uncertainty slows everything down. In competitive deal environments, that kind of delay can cost the deal—or the valuation.
TechCrunch recently highlighted how technology ownership—not just usage—plays a growing role in how deals are priced, structured, and integrated. The more confident a buyer feels in the tech story, the more comfortable they are paying a premium for it.
Don’t Wait Until You’re in Diligence
If you’re a founder, don’t wait until diligence starts to figure out your tech stack. Start now. Audit your licenses. Clean up your IP chain. Document how your product is built—and by whom.
If you’re a buyer, make classification part of your first look. It tells you what you’re really buying, what you can depend on, and where you might need protection.
Ultimately, classification isn’t about slowing deals down. It’s about building confidence—and that makes everything go faster.
Let’s Talk
At Montague Law, we’ve advised on deals involving bleeding-edge technologies—from AI-native platforms to Layer 2 scaling protocols. We speak both legal and technical fluently, and we help our clients bridge the gap between founders, developers, and dealmakers.
If you’re working on a deal—or planning one—we’d love to help you get the tech story straight from day one.
